Headwinds likely to cool Melbourne growth, says brokerage

There are “several headwinds on the horizon” for Melbourne’s property market despite the city being poised for further capital growth, according to recent research by Momentum Wealth.

According to the report Property Market Spotlight: Melbourne compiled by property investment consultancy and brokerage Momentum Wealth, the Melbourne property market is “well-positioned” for further capital growth.

The report, which analysed key demand and supply indicators that influence the city’s property values, found that its strong population growth, growing labour market and an undersupply of established property listings are driving property demand.

However, the research found that a potential “cash-flow crunch” for investors, along with affordability constraints, tighter finance markets and an increasing supply of new stock is likely to weigh on price performance.

Momentum Wealth managing director Damian Collins said the combination of record-low yields, record-low income growth and rising interest rates will mean investors who have negative cash flow on an investment property will find it increasingly difficult to meet their loan repayments.

“This will particularly be the case if lenders continue to make out-of-cycle rate hikes for investment loans while rental yields remain constrained, and will most impact those with tighter cash flows,” he said.

Further, while the research report showed that the city’s short-term capital growth indicators remain strong, not all segments of the Melbourne property market are likely to benefit.

“There is a big gap in the capital growth performance in Melbourne between houses and apartments,” Mr Collins said, adding that the former was running at double-digit growth while the latter was only slightly above inflation.

“The research report forecasts this growth disparity to continue, with apartment values even beginning to fall in the short term,” he elaborated.

“This is likely as demand for apartments wanes following the reintroduction of stamp duty for off-the-plan purchases by investors, the new vacant property tax and tighter lending conditions.

“These demand-side pressures have the potential to rattle the Melbourne apartment market at a time when there is a record level of apartments under construction.”

[Related: Conditions slow in nation’s hottest housing markets]

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Francesca Krakue

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